July Real Estate Report Card Focuses on Eventual Soft Landing
Predicting the future is never an easy task. As the state of Florida home loans and the overall market is considered in various regions, allow us to take a close look at the July real estate report card in order to see where things stand.
There will probably be a soft landing, though it will vary by market and even submarket. While the majority of builders are making profits and the econony is in decent shape, each market has its own issues that need to be worked through. These include:
New-home supply: In some markets, there is an oversupply of new construction in the peripheral areas.
Resale supply: Watch out for an oversupply of resale listings, likely to worsen by an almost certain increase in forced sales due to adjustable-rate Florida home loan resets.
Affordability: In markets that were flooded with speculators, there are affordable housing concerng that are likely to be with us for many years to come.
Who knows how long it will take to solve these problems. The hope is that the Fed can a) maintain positive job growth of 1.5 percent-plus per year and b) keep Florida home loan rates from rising too much further; in those caes, the resale supply of most markets will return to normal.
With all this in mind, the following grading system of the economy and the housing market is a “bell curve” model, with statistics at an all-time high receiving an “A,” statistics near the long-term average receiving a “C,” and the worst times ever receiving an “F.”
Economic Growth: C
The U.S. economy is healthy. Economic growth in the first quarter was revised to 5.6 percent. Growth in June was slower than expected but still solid, adding 1.85 million jobs in the last 12 months. The core CPI inflation rose to 2.4 percent, and total inflation was 4.2 percent.
Mortgage Rates: B-
Mortgage rates continued to rise in June, with the one-year adjustable mortgage rate 19 basis points higher at 5.82 percent at month-end, while fixed Florida home loan rates rose to 6.78 percent.
Consumer Behavior: C+
Consumer confidence rose in June to 105.7, due largely to an improved outlook for the next six months and for the labor market. While individuals may be delaying home purchases because of affordability issues or investment perceptions, they have a confident outlook for the future, which is critical to a housing market recovery.
Existing-Home Market: B
While home-buying activity remains high, rising listings are creating a much more competitive housing market. May sales of existing homes sales fell to a 6.7 million annual rate, down nearly 7 percent from one year ago. The inventory of existing homes continues to rise, to 6.5 months of supply, the highest value since July 1997. There are a record number 3.6 million existing homes available for sale.
New-Home Market: B-
May new home sales rose to a 1.23 million-unit annual rate, higher than many economists expected. New home sales fell only in the Northeast during the month. The Housing Market Index, which measures builder confidence, dropped another four points to 42, a decline of 42 percent in the last year.
Housing Supply: C+
Construction is declining. Housing starts increased to 1.96 million in May from 1.86 million in April, but remain down 4 percent from one year ago. Single-family starts rose to 1.58 million.
The conclusion to be drawn from this report is that areas such as the Palm Beach housing market are not in the best shape at the moment - but a crash is very unlikely, meaning buyers and sellers are in solid shape for the future.
